Any job, team, or organization must balance two types of performance. The first type is known as tactical performance. Tactical performance is how effectively your organization executes its plan. Tactical performance is the driver of focus and consistency; it allows organizations to increase strength by directing limited resources to the fewest targets. Starbucks® baristas that make a latte the same way across different café s, or software engineers that deliver the expected amount of code each day, are examples of tactical performance. The second type of performance is known as adaptive performance. Adaptive performance relates to how effectively an organization diverges from its plan and manifests as creativity, problem solving, grit, innovation, and citizenship. Adaptive performance allows organizations to create value through the unknown (i.e., the VUCA—volatility, uncertainty, complexity, and ambiguity). An example of adaptive performance is when a sales person tailors their approach for a customer, or seen an engineer helps a colleague solve a problem. Because the basis for tactical performance and adaptive performance are conflicting, organizations and individuals must seek a balance between the two types of performance. One key concept for achieving this balance is realized in the notion that why we work determines how well we work.
There have been numerous studies conducted with workers to measure how different motivations affect the quality of the work product. Six main reasons or motivations for why people work can be summarized through play, purpose, potential, emotional pressure, economic pressure, and inertia. These motivations can be defined as follows: Play s when you are motivated because you enjoy the work itself, Purpose is when you work because you value the work's impact, Potential is when the outcome of the work benefits your identity, Emotional pressure is when you continue to do the work you do because you are afraid of disappointing yourself or others, Economic pressure is when you work to gain a reward or avoid a punishment, and Inertia is when the motive is so far removed from the work and your identity that you can't identify why you're working; you continue to do the work you do largely because you're already doing it. Some researchers have concluded that the first three motives tend to increase performance, while the latter three hinder performance. The first three motivations can be directly connected to the work itself, while the latter three motivations are indirectly related to the work. These indirect motives tend to reduce performance because you're no longer thinking about the work—you're thinking about the disappointment, or the reward, or why you're bothering to do it at all.
To optimize worker productivity, organizations should increase the first three motivations while reducing the latter three motivations to create a total motivation type environment. By enabling total motivation (“tomo”), the organizations will increase worker productivity and customer satisfaction (resulting from motivated and more effective employees). This type of increased performance is not limited to a single industry or type of organization but can be found effective across any industry (e.g., retail, banking, telecommunications, the fast food industry, etc.).
One way to summarize how motivated workers are within an organization is to identify the organization culture. In particular, culture is the set of processes or elements within an organization that affect the total motivation of its people. In a high-performing culture, those processes or elements maximize total motivation. One of the most sensitive elements is the career ladder within an organization. Thus, for a company to create a high performing culture, it is essential that its systems of performance management (e.g., performance evaluation), compensation, and career development are constructed in a way that maximizes total motivation.
Generally, organizations rely on performance evaluations of individuals to determine compensation and career development. Typically, performing evaluations for individuals within an organization includes reviewers and reviewees filing out generic review forms following a generic rating system. Individuals are typically reviewed on the same generic scales, regardless of position and experience within an organization. Individuals are typically rated using generic subjective ratings such as satisfactory, unsatisfactory, needs improvement, meets expectations, etc. Organizations rely on these ratings to determine performance of an individual as well as provide a baseline for compensation and bonus to be paid to that individual.
Conventionally, base compensation for an individual is typically set by a title or level of the individual within an organization, and the initial compensation is often negotiated at hire. Traditionally, a bonus and sometimes the base compensation for an individual are determined using one of four techniques, each of which are fundamentally flawed because they do not lead to total motivation of the individual. The four techniques include metric based (e.g., commission, hourly, etc.), competency based (e.g., knowledge base, performance evaluation, etc.), rating/ranking based, and at the discretion of a superior.
In metric-based systems, performance is judged on objective measures, such as revenue, a net promoter score, number of widgets produced, or even hours worked. Metric-based systems focus individuals on near-term performance, rather than learning or development. These systems tend to define outcomes narrowly and often miss the true drivers of value creation. The narrowing of a field of vision of an individual can lead to distraction, cancellation, and cobra effects. The distraction effect leads to individuals chasing the metrics rather than focusing on the rate of improvement of productivity. The cancellation effect causes individuals to perform the minimum to check the boxes of whatever metrics are being measured. The cobra effect causes individuals to be deceptive to achieve their target metric(s). These are textbook examples of maladaptive phenomena resulting from low-total motivation processes that rely on emotional pressure, economic pressure, and inertia.
In a competency-based system, leaders evaluate individual performance against a selected set of behaviors or competencies. In most organizations, this model has five to ten competencies, like “teamwork,” “problem solving,” “communications”, etc. These competencies tend to be generic across roles and functions, and connect loosely to value. Because the competencies are generic, they penalize individuals with technical expertise. These competencies tend to be evaluated on a “competency scale” which ranges from competent to incompetent. The competency scale is uncomfortable for supervisors to use and motivationally negative for employees, and thus not accurate. Worse still, the constant fear of judgment reduces learning or “amplifying” of skills by individuals within an organization. Lastly, the coarseness of the competencies and the rating scale makes the system highly subjective and prone to human biases.
In a ratings/rankings based system, leader judgment is used to rate or rank individual performances (e.g., through a generic performance evaluation). The ratings/rankings systems incentivize individuals to focus on self-centric behavior and competition, rather than working to benefit the team. This detracts from adaptive performance, and can even lead to sabotage. The ratings/rankings based system can create extreme stress and reinforce many forms of bias. Additionally, the quality of work can decline when individuals are distracted by ratings and rankings.
Organizations that have no formal model tend to use leader discretion systems. In absence of a formal model, leaders have complete discretion on how to dole out rewards and punishments. This magnifies leader biases, and causes individuals to focus on pleasing their direct managers rather than acting in the best interest of the organization. These systems can reduce diversity, and lead to success through nepotism.
All of these methodologies experience shortcomings that reduce total motivation of individuals, thus making these methodologies ill-suited for producing high performing cultures within an organization. In particular, the generic rating systems applied across various work groups do not provide individuals with tailored and objectively consistent feedback and direction in their career path. Additionally, each of these performance management systems drives negative consequences relating to performance of individuals within an organization, including increased gamesmanship as employees try to beat the system and promote themselves at the expense of others. Similarly, it is difficult to determine appropriate compensation for individuals because it is difficult to objectively and consistently rate their work product, habits, and production. Therefore, compensation is generally based on years of experience in a particular field or other subjective factors but rarely factor in skills that the individual has learned or mastered over those years of experience. The subjectivity of conventional compensation approaches also results in biases in pay that often equate to evaluation based on gender and race, among other factors indeterminate of an employee's contributions or value. Furthermore, conventional evaluation and compensation approaches utilized by organizations do not actively encourage learning and teaching, resulting in side effects like knowledge hoarding and deception.